Sunday, March 24, 2013

SEPTEMBER 29, 2008 – U.S. STOCK MARKET CRASH

2008 – U.S. STOCK MARKET
CRASH
The Dow Jones plummeted by 778 points, its largest one-day drop in the history
of the New York Stock Exchange. The crash was the result of the bursting of a
massive housing “bubble” caused by financial institutions issuing money out of
thin air many times in excess of their assets to finance many highly risky
mortgages and other bizarre risky investments. The money issued for mortgages
were loans, making the massive amount of new money issued (roughly 97% of all
originating into our economy) as debt. The elimination on controls of the
financial industry a decade earlier opened the door, but was not the root
cause, of the crash that has come to be known as the Great Recession. The root
cause of the 2008 crash, similar to all other bursts of financial bubbles
before it, was the ability of banks to issue money out of thin air as debt
(loans) many times in excess of their assets. The smaller the asset base, the
greater the risk that banks will go bankrupt when their loans cannot be repaid
or other investments go bad.